Am I the only one that thinks this is highly suspicious

[SSuspicioumum]

Hi, so my mum is converting our home into individual flats. She is 65yrs old and she had a few builders come along to price up the works. She knows she won't be able to get a big loan at her age, but wont listen to reason. One builder that she is really drawn to, has offered not to accept payment and pay himself from the rent once the flats are occupied when he finishes building the works. Am I the only one that thinks this is highly suspicious even with a contract in place? Who works for free in this day and age.

Is your mother planning on living in one of the ' new ' flats, will she have to pay rent too ?
i.e. is the builder expecting rent from all 4 ? flats for 1, 2, 3 or more years until his bill is paid ?

What happens if your mother dies before the builder is fully paid ?

@SSuspicioumum your mum is crazy!!! in my area, people are now trying to buy the flats above and below and convert back into proper family homes again. 4 bedroomed house will make awfully small flats!! can she not just buy a couple of flats outright rather than going through this rigmarole?? I am 69 now and I couldnt imagine living in that mess for the long time it is going to take. bad enough just getting an ensuite remodelled!!

Yep.

Your mother needs to take some serious legal advice, especially if she is signing over the rights to any rental income, or giving him a charge over the property if she is unable to pay. What interest will he be charging her on the debt she owes him?

Where is she going to live?

Well this is it. The builder is effectively loaning the mum the money, and in doing so it all has to be drawn up legally - it's the builder who stands to lose, therefore it makes sense that he'd have to be the type to put pressure on the mum if she fails to pay up.

Well... for a few years your mum going to have a lot less (or possibly none at all) of the income from the flats she's expecting as the debt and interest is paid off by the rental income going to the builder.

Has she worked out how long it's going to take to pay off the builder going this route?

And how is he going to pay himself off from the rent? - he's not proposing he charge it and collect it from the tenants directly is he?

How will she pay for routine maintenance, repairs and renewals with no/reduced rental income from the flats?

This sounds bonkers. How is your mum going to generate extra income if the builder needs to be repaid from the rentals? How much are the works going to cost and over how many years will the builder be repaid? Presumably your mum also needs to live in one of these flats so is that going to be rent free? And how on earth is she going to not only generate income and repay the builder but also allow for all the costs associated with changing tenancies, inventory checks, Routine maintenance, fallow periods between letting etc etc. there will also be tax payments due to HMRC. If the builder takes whatever is left over after all of the above the loan is never going to be paid off in her lifetime! Presumably there will also be some kind of interest costs due to him?

I think @ZoomDoomZoom could well be right that that's the plan unfortunately

So it's a 4 bedroom home and she wants to turn them into 3-4 1 bed flats/bedsits for rent.

Well, I'm 69 and think this is a ridiculous idea. Unless it's a mansion think of how thin the walls will be. Awful. I can hear my grim neighbours arguing, one time so bad I phoned the police. They've calmed down and shut up now thank god.

The fact she's making "a deal" with a builder rings all kinds of alarm bells.

Have you seen the plans? Has a structural engineer done a report? Has a building license been applied for?
There's a big difference between a bed sit and a one bedroom flat.
This sounds completely unmanageable. And I cannot see any builder doing this. What a he a member if any sort of federation? VAT registered? Has she looked at any of his previous work? Has he given her a contract?

I can’t even imagine how a 4 bed house could become 4 flats. What about bathrooms and kitchens?

Well it does kind of make sense.
Say he puts in £50k worth of work.
Then receives rent of £1k a month once the work is done. I imagine he is including a huge 'interest' rate so he would probably rent of £1k pm for 100 months for example. It just means his payment is spread over a much longer period. What is in it for him could be 1) higher than it should be charge for building work, and 2)(effectively) a very high interest rate.

You need to see the terms he is offering and do the sums to show total payment for the work (including interest on any loans, a like for like total cost).

This sounds crazy. What happens if she can't find tennants for a start?
I too think the builder is up to something, and will put pressure on your Mum to sign things over to him.

I am not sure why her age would be a factor in a plan like this as it doesn't depend on her working.It is a case of whether the numbers stack up

Sorry I meant a factor in getting a banl loan.The builder plan is loop the loop!

And presumably he will add an element of interest onto the loan for the work. I would guess he would want 10% or something on the outstanding amount calculated monthly? yearly? The devil will be in the detail. Or he will add a big chunk to the bill for the work to cover notional interest over a number of years.

Mum will have to cover all the maintenance costs, agents costs? While he recoups his money from the rent. Or will he take half or threequarters of the rent so she can cover other costs? So many questions.

Has she actually tried to get a loan?

She wanted to find out the total cost from quotes before applying for loan. The plan was to apply for loan, however builder came up with idea of loaning her the money. All sounds very suspicious

We are on the same page. Mum just can't see it and won't listen.

Well that’s just daft. She needs to go and see about a loan instead of presuming she won’t get one and a solicitor.

is she living in an area with high demand for small flats ? Has she thought about the noise aspect? Flats in converted houses aren’t always great from that point of view and she’ll end up managing disputes between neighbors especially if she lives there and is the landlord

Your mum obviously doesn’t have a particularly sentimental attachment to her home if she is considering carving the whole thing up into flats and if she is going to end up living in one of those flats why doesn’t she just sell the house and downsize to a one or two bedroom place. The equity freed up and invested could provide just as much of an income as those flats/bedssits will.

Also, as an existing landlord, I would advise anyone against getting into buy to let Property at the moment. It is a heap of work and expense and the returns are not good. I don’t see things improving under a Labour government either, in fact, I think they will get more difficult for landlords. Your mum really hasn’t thought any of this through. Do you know what her actual financial situation is OP? Does she need additional income? What is her pension situation?

With none of the hassle either!

Indeed. I honestly can’t emphasise how much of a hassle I think this is going to be for her. Does she have previous experience of letting/managing properties? Is she going to use an agent to find tenants or is she planning on managing this herself, in which case she will be responsible for credit checks, referencing, placing deposits in a scheme, inventory – I could go on!

This 100%.